Mobile Wallet Paytm Hits Pay Dirt Amid India's Cash Crackdown

By Corinne Abrams and Newley Purnell Features Dow Jones Newswires

India's second-most-valuable startup, the mobile-payments app Paytm, has a new target after proving itself more popular than credit cards.

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"We're competing with cash," said Madhur Deora, Paytm's chief financial officer. "In India, we're not competing with cards."

The company's boast isn't a stretch, given India's crackdown on cash over the past six months has left citizens and merchants searching for cashless payment alternatives. Paytm has seized the opportunity and become the market leader through timely partnerships, simplifying the app's process and dispatching an army of up to 10,000 trainers to reach out to the tiny shops that dominate the Indian economy.

The results have been impressive. Five million merchants in India accept payments using Paytm, five times the number that accept credit cards, Mr. Deora said. In addition, Paytm has 225 million mobile wallet customers, more than Snapchat's 166 million daily active users world-wide and four times as many as rival mobile-payment competitors MobiKwik and FreeCharge, which each have 55 million users.

While Paytm is the market leader now, challenges exist. Samsung Pay has launched in India, and the messenger service WhatsApp is exploring adding a payment option for its 200 million users in India. The government also has created a mobile-payments system, which allows users to transfer money easily between bank accounts. Plus, Paytm's recent growth could flatten as India's monetary system stabilizes.

Nonetheless, Paytm's rapid rise has attracted investors. In May, the company received a $1.4 billion investment from SoftBank Group Corp., one of the first investments by the Japanese giant's $100 billion Vision Fund, the world's largest tech fund. The funding boosted the app's valuation to more than $7 billion and put it behind only the online retailer Flipkart, valued at $11.6 billion in April, among startups in India.

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Paytm's previous investors included Chinese e-commerce giant Alibaba Group Holding Ltd., which shared lessons on how to deal with a billion-person market, like how to engineer an app so it can withstand an avalanche of new users. Other early backers were Intel Corp.'s Intel Capital and Taiwanese chip-design company MediaTek Inc.

The company's success has garnered popularity for its founder Vijay Shekhar Sharma, a charismatic 38-year-old who has been building businesses since he was in college and was listed this year as India's youngest billionaire by Forbes India magazine.

He has put a priority on flexibility and speed, even avoiding giving top executives specific job titles so they can be moved from one part of the business to another easily.

Though he has been good at getting capital and expertise out of his investors, he has kept tight control of his company, said Satish Meena, senior forecast analyst at Forrester Research. "He decides what direction [the company] will take," not its investors, he said.

Paytm, launched by One97 Communications in 2010, started as a mobile-recharge and bill payments service and expanded to cover everything from paying electricity bills to buying movie tickets and groceries or transferring money owed to a friend.

The company began to separate from its competitors when Uber arrived in India. As the ride-hailing company was beginning to expand in 2014, India's central bank put restrictions on how it could accept credit card payments. Paytm offered Uber a solution: Use the Paytm mobile wallet to get around the problem. By joining forces with Uber, the company reached a new group of tech-savvy consumers.

Paytm doesn't disclose revenue figures but has said it isn't profitable at this point, choosing to continue to invest in expansion. The company has invested close to $600 million over the past two years to acquire new vendors, a move that has set it apart from competitors such as MobiKwik and Freecharge, analysts said.

A big break came late last year when India canceled 86% of currency in circulation in an effort to cut corruption and bring more people into the tax net by forcing them to use less cash. The day after Prime Minister Narendra Modi made the surprise announcement, Paytm took out full-page newspaper ads congratulating him on "the boldest decision in the financial history of independent India!"

Paytm representatives started giving business owners group demonstrations of their service and often as many as 100 would show up, frantic for an alternative to cash. The vast majority of Indian shops don't accept credit cards because of the costs of maintaining a swiping machine.

The company also simplified its process so the shop owners didn't even need smartphones or scanners. Shops each got their own coded sticker that they put on display, allowing customers to use their phone's camera to scan the code, plug in the amount they owe and press pay. The shop owners then get a text message confirming payment.

The company has been adding as many as 10,000 merchants a day and has a total of more than 500,000 taxi and three-wheeled auto rickshaw drivers on the platform. In addition, Paytm aims to have a half-billion users by 2020, roughly equal to the number of global users that LinkedIn has now.

Paytm plans to leverage its massive customer base by offering new services. In May, the company launched a payments bank that will allow users to move wallet cash into interest-earning accounts.

"We as a company have always been selling what we do far more aggressively than somebody else does," Mr. Sharma said at an event this week in Mumbai.

--Debiprasad Nayak contributed to this article.

Write to Corinne Abrams at corinne.abrams@wsj.com and Newley Purnell at newley.purnell @wsj.com

(END) Dow Jones Newswires

May 31, 2017 08:15 ET (12:15 GMT)